1. The Australian Delegation has considered the implications for Australian trade of the Japanese requests received on 29th August 1956. 
2. The Australian Government has been requested by the Japanese Government to accord Japanese goods most-favoured-nation tariff treatment, and import licensing treatment no less favourable than that accorded other non-dollar goods.
3. Although individually either of these requests may not provide insuperable problems as far as the Australian Government is concerned, in combination they could raise important difficulties.
It is clear that the extension of m.f.n. tariff treatment to Japanese goods would not expose Australian production or trade to the same difficulties if Australia retained the right to impose quantitative controls on imports of particular Japanese goods.
Similarly, the problems which would obviously arise if Japan were accorded no less favourable licensing treatment than that accorded to other non-dollar countries would be less difficult if no tariff commitments were given in respect of Japanese goods. Under those circumstances recourse could be had, when necessary, to tariff action to prevent any serious disruption to Australian industry or trade.
4. In short, the problems facing the Australian Government relate to the preservation of the structure of Australian industry and the maintenance of a stable pattern of external trade. Moreover the extent to which competition from Japanese goods affected Australian commerce and industry in the pre-war period, increases the material difficulties facing the Australian Government in endeavouring to meet the Japanese requests.
5. Nevertheless the Australian Delegation is anxious to find ways and means of overcoming these practical trade difficulties with a view to reaching a solution which is mutually acceptable. To this end it seems desirable to analyse the problems which it foresees in more detail.
6. The Japanese delegation will be aware that, by established policy, protection for Australian industry is provided by tariffs fixed by the Government after public enquiry and recommendation by the Tariff Board, an independent tribunal. Depending on the evidence presented, the Board may recommend protective duties under the British Preferential and/or the most-favoured-nation tariff. Whichever rate is recommended, the other is determined after reference to Australia's contractual obligations in regard to preference margins which are defined in the Ottawa Agreement and the G.A.T.T.
7. The usual most-favoured-nation clause in any treaty requires that the duty applied to imports from one country (other than a country entitled to preferential tariff treatment) shall also apply to similar goods from all other countries entitled to m.f.n.
tariff treatment. Because it makes no allowance for their relative competitive position in the Australian market, the extension of m.f.n. treatment to additional countries tends to necessitate the raising of m.f.n. protective rates in order to ensure that Australian industries are safeguarded against damaging competition from the lowest cost overseas supplier.
8. The extension of m.f.n. tariff treatment to Japan would probably necessitate substantially increased m.f.n. duties on a number of goods where Japan's costs are relatively low. The increased m.f.n. rates would often be unnecessarily high in relation to exports from countries at present accorded m.f.n.
treatment and could have serious effects on their exports to Australia. Moreover it could lead to an unnecessary increase in the protection accorded Australian manufacturers under the tariff.
9. The probable necessity to increase m.f.n. duties on a number of lines also presents several other problems. Firstly, many m.f.n.
duties in the Australian tariff have been bound against increase and in those cases tariff negotiations under Article 28 of G.A.T.T. would often be a necessary pre-requisite to any increase in the duties. Secondly, the G.A.T.T. 'no new preference' rule often requires B.P.T. rates to be increased to the same extent as m.f.n. duties in order that the maximum permissible margin of preference shall not be exceeded. The increase in the B.P.T. which would unavoidably follow increases in the m.f.n. rates may be quite unnecessary for protective purposes and could seriously damage the trade of the countries affected, for example, to the extent that it gave an unnecessary protection to Australian industry, it would have serious effect on United Kingdom trade.
10. A further point of concern is the period of time which must inevitably elapse before the Government can adjust individual tariff levels because of the delays inherent in Tariff Board procedures. Australia is committed to give the United Kingdom three months notice before the Board can commence its public enquiry. By the time the Board has made its report to the Government and the Government has concluded negotiations under the G.A.T.T. it is not unusual for 12 months to have elapsed before the tariff can be amended. Thus the Australian Government is not able to make rapid adjustments to the tariff to maintain the degree of protection already accorded to Australian industry should it need to do so because of damaging competition from Japanese exports.
11. If no modifications were made to the import licensing treatment currently applicable to Japanese goods, the Australian Government would have the means of providing a protection for Australian industry during the period required to review tariff levels. In the absence of this alternative means of protection certain Australian industries could be subject to severe dislocation. Similarly there could be a sudden disruption to the pattern of Australia's trade leading to problems in her relations with other trading partners.
12. Thus the particular problem presented by the Japanese requests is to find adequate assurances that, under conditions where Australia undertakes commitments to Japan in respect of both tariffs and import licensing, it will be possible for the Australian Government to ensure that those commitments do not restrict its ability, even if only in exceptional circumstances, to maintain adequate protection for Australian industries and to provide the basis for continuance of stability for the normal pattern of Australia's external trade.
13. The Australian delegation would be pleased to have the comments of the Japanese delegation on how, in the view of the Japanese authorities, the difficulties inherent in the present situation could be met. What steps for example might be taken by the Japanese authorities to avoid undue disturbance to Australian production or Australia's pattern of overseas trade? What measures is it contemplated might be open to Australia, within the commitments requested by Japan on tariffs and import licensing, to ensure that those necessary objectives can be attained? It is the understanding of the Australian delegation that the Japanese Government has already faced similar problems in the course of trade negotiations with the Canadian Government.
14. The Australian Delegation is seeking a way of satisfying the Japanese requests which is compatible with the Australian Government's traditional policy of protecting Australian industries and which would not open the possibility of serious disruption to Australia's external trade. The Delegation would therefore be glad to have the views of the Japanese authorities in regard to paragraph 13 above. The Australian Delegation will be glad to give further consideration to the Japanese requests in the light of views or comments which may be furnished by the Japanese Delegation.